PURCHASES OF LARGE-SCALE hydroelectric and offshore wind resources as required by the recently passed energy law would reduce the state’s overall greenhouse gas emissions by 9 percent at a cost of $5.70 to $8.50 a month for the typical electric ratepayer. Our analysis suggests the incremental cost of removing a metric ton of carbon dioxide is $30 to $40 for hydroelectricity and $160 to $250 for offshore wind. The numbers offer policymakers a way to compare various methods of reducing greenhouse gas emissions to determine if Massachusetts is pursuing the most cost effective solution to the problem.
Massachusetts enacted its clean energy legislation in an effort to promote energy diversity and improve reliability. The underlying goal was to reduce greenhouse gas emissions to meet targets established as part of the Global Warming Solutions Act. Our consulting firm, Clean Energy Analytics, developed this quantitative analysis to assess the impact of these new potential renewable energy sources on electricity prices and greenhouse gas emissions. The quantitative analysis, built using publicly available information, focuses on the years 2023 through 2027. While the legislation provides rules to support and encourage emerging energy storage technology, small hydro, and additional distributed generation and conservation through commercial Property Assessed Clean Energy financing, this analysis focuses exclusively on hydroelectricity and offshore wind.
By 2027, the new clean energy resources should displace a portion of existing marginal fossil-fuel-fired units, such as those powered by natural gas. This displacement will reduce CO2 emissions by an estimated 3.9 million metric tons from hydro purchases and 2.7 million metric tons from offshore wind for a total reduction of 6.5 million metric tons (see graph). The reduction is 40 percent of existing Massachusetts electric system greenhouse gas emissions , which are estimated at 15 million metric tons for 2014, according to the Massachusetts Office of Energy and Environmental Affairs.
Currently, electricity generation is not the leading Massachusetts source of greenhouse gas emissions, which total about 75 million metric tons. Other Massachusetts sources of greenhouse gas emissions include transportation at 30 million metric tons; residential & commercial (primarily heating) at 20 million metric tons, and industrial and other sources at 10 million metric tons. The impact of the new resources on the total Massachusetts greenhouse gas emissions is approximately an 8.7 percent reduction. Massachusetts has already reduced greenhouse gas emissions by approximately 20 million metric tons from 1990 levels mostly by switching generation from coal and oil to natural gas. In 2015, regional coal stations served less than 2 percent of New England’s power generation and natural gas approximately 43 percent.
As new renewable resources displace higher operating cost alternatives, our analysis shows wholesale electricity energy prices could be lowered by approximately $3.70 per megawatt hour from large hydro and $2.70 per megawatt hour from offshore wind for a combined $6 per megawatt hour (or 6 cents a kilowatt hour) of price suppression by 2027. Another possible benefit, not quantified here, is the potential reduction in natural gas prices. As gas-fired generators are displaced by new hydro and offshore wind resources, demand for natural gas is expected to diminish, resulting in reduced pipeline congestion and smaller price spikes for natural gas during winter peak periods. These electricity and natural gas price reductions will benefit all New England customers.
The total hydro power cost is the sum of the energy and transmission costs. We based the transmission cost to deliver hydro energy on the redacted public Northern Pass proposal, scaled to reflect the higher delivery amounts in the legislation. The legislation calls for “guaranteed energy delivery in winter months,” which may be difficult because Canadian suppliers are also winter-peaking entities. These suppliers may require a premium to supply Massachusetts with firm energy during these winter peak demand periods. Depending upon the firmness of the winter energy supply, we used two scenarios: (1) a low-cost approach based on the average annual wholesale price of electricity in New England, and (2) at a 10 percent premium above the average wholesale price.
The new offshore resources are assumed to add 400 megawatts annually from 2024 through 2027 for a total of 1600 megawatts. The range of cost for delivered offshore wind power is based on estimates from the “Massachusetts Offshore Wind Future Cost Study” by the University of Delaware. The study projects a high-end cost of 16.2 cents a kilowatt hour to a low of 12.8 cents per kilowatt hour through 2028.
Once the reductions in the wholesale electricity prices are netted against hydro transmission agreement and offshore wind contract expenses, the impact on a typical Massachusetts residential consumer using 600 kilowatt hours per month is between $5.70 and $8.50 per month by 2027. It’s unclear what a typical electric bill will be in 2027, but currently it is $119. The analysis indicates the cost increase is between $1.10 to $1.60 a month for imported hydro energy, followed by the additional cost for offshore wind of $4.50 to $6.90 a month by 2027 (see graph). A recent poll by the Energy Policy Institute at the University of Chicago and the Associated Press-NORC Center for Public Affairs Research indicates 57 percent of Americans are willing to pay at least $1 a month extra to reduce carbon emissions. The same poll shows that 39 percent would pay at least $10 a month to reduce greenhouse gas emissions.
In a recent paper entitled “The Importance of a Performance-Based Capacity Market to Ensure Reliability as the Grid Adapts to a Renewable Energy Future,” ISO New England, the operator of the regional power grid, stated that “additional renewables are expected to decrease wholesale electric energy prices, which in turn will increase capacity prices to meet resource adequacy needs. The shift in revenues from the energy to the capacity market will also affect the resource mix, putting additional financial pressure on energy-market-dependent resources.” We have not attempted to estimate any potential capacity price increases.
There are risks with the large-scale projects required by the legislation. While the existing estimates for hydro transmission cost may be based on best available information, there can be unforeseen construction issues with any new transmission project. Any such cost overruns could be borne by the ratepayer. Offshore wind facilities of the size under consideration are new to North America and may be subject to additional cost risks. Location variables can impact construction costs and add uncertainty to the total project cost in deep-water installations. Each project also requires review by regulatory bodies.
The incremental cost increase in connection with the implementation of the clean energy legislation may be viewed as the cost to reduce greenhouse gas emissions. Our analysis shows that imported clean hydro will reduce greenhouse gas emissions at a cost of approximately $30 to $40 per metric ton of carbon dioxide. Similarly, offshore wind will reduce greenhouse gas emissions at a cost of between $160 to $250 per metric ton. A recent US government study reportedly used three economic models which estimated the social cost of an additional ton of carbon to the economy at $37 per metric ton. Another study at Stanford estimated the social cost at $220 per metric ton of carbon dioxide. Synapse, a consulting firm, has estimated the mid-case levelized price over the period 2020-2050 at $41 per metric ton. While the proposed offshore wind cost from a greenhouse gas emission perspective may seem high, this analysis did not attempt to quantify any potential positive indirect benefits, such as making Massachusetts a hub for offshore energy.
The hydro and OSW resources in the legislation should provide benefits from reduced dependence on natural gas. We project that if both the new hydro and offshore wind resources are added to the grid by 2027, New England natural gas consumption would decrease by about 313 million cubic feet per day. To provide a perspective, this amount is slightly less than the Spectra/Algonquin Incremental Market pipeline capacity of 342 million cubic feet a day scheduled to start operation in November 2016. Natural gas’s share of electricity generation would drop from approximately 43 percent to 31 percent grid-wide and down to 16 percent in Massachusetts. As reliance on natural gas is reduced, New England will be more insulated against seasonal natural gas price volatility.
The recent legislation may impact the “market based” solution approach promoted in the 1997 rules deregulating power generation. The new legislation strongly encourages certain large-scale clean energy resources and favors these resources over those of the current market-based generation system. The law does so “to promote energy diversity” as well as attempt to manage toward emission targets in the Global Warming Solutions Act.
Roughly 40 percent of Massachusetts greenhouse gas emissions come from transportation, 28 percent from residential/commercial, 12 percent from industrial/other, while only 20 percent comes from electricity generation. Our analysis shows that if the new hydro and offshore wind resources are added to the regional grid, they will reduce greenhouse gas emissions in the electric sector by 40 percent but only 11 percent overall.
The cost for reducing total Massachusetts greenhouse gas emissions by 6.5 million tons is $70 to $100 a year for a typical residential customer. Many Massachusetts customers may consider this a worthwhile investment, others may not. Are we doing enough in other areas to reduce greenhouse gas emissions and would those approaches attain a similar reduction in greenhouse gases at a lower cost? Other market approaches can reduce greenhouse gas emissions from all sectors of the economy, including the 80 percent of Massachusetts carbon dioxide emissions from sources other than power plants. Inclusion of all emission sources may provide a superior basis to economically optimize consumer expenditure towards meeting the Global Warming Solutions Act goals.
Farhad Aminpour and Roland Scott are principals at Clean Energy Analytics. Aminpour most recently held the position of director for the energy markets division at the Massachusetts Department of Energy Resources. Roland was previously associate director of research and development for the Michigan Alternative and Renewable Energy Center.
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This paragraph says it all:
“In a recent paper entitled “The Importance of a Performance-Based Capacity Market to Ensure Reliability as the Grid Adapts to a Renewable Energy Future,” ISO New England, the operator of the regional power grid, stated that “additional renewables are expected to decrease wholesale electric energy prices, which in turn will increase capacity prices to meet resource adequacy needs. The shift in revenues from the energy to the capacity market will also affect the resource mix, putting additional financial pressure on energy-market-dependent resources.” We have not attempted to estimate any potential capacity price increases.”
If state mandates for renewable energy shift the market from energy to capacity, why does this study ignore rate increases from capacity prices? Could it be they do not want to know the answer?
While we pay for electricity by consumed energy (megawatt-hours), cost is largely determined by capacity (megawatts) to address peak demand. Currently peak demand is satisfied mostly by dependable power form local nuclear, coal, and natural gas. By 2027 coal and nuclear will be gone leaving natural gas as the only dependable power capacity. Wind and solar need a massive amount of storage to match the dependability of coal and nuclear. It is unlikely that storage availability will be economically developed by then. We will be at the mercy of natural gas pipelines and Canadian hydro power to keep the lights on in the peak demand months of winter and summer.
Canada is not likely to send us power when they will need it as much as we will, no matter what they promise, and there is not a pipeline big enough to supply all the natural gas we need in the cold winter months. The diversity of supply promised by policymakers is only on paper. In reality, the system is going from at least three dependable resources to one (natural gas).
Rates will not only increase, rates will skyrocket, and with the loss of nuclear, carbon avoidance will be small to non-existent.
Reducing greenhouse gas emission to meet the Global Warming Solutions Act will require significant reduction in fossil fuel consumption for power generation. Potential alternatives to the large-scale imported hydro and offshore wind that comply with the Global Warming Solutions Act will similarly impact wholesale capacity costs. Therefore, it would not materially alter incremental values and was not considered here.
“Solar thermal plants and other utility scale “renewable” energy sources like wind are actually gas plants” July 2010, Robert F. Kennedy Jr. lunchtime speech to the Colorado Oil and Gas Association. NO NUKES Rule, Because Nuclear Plants have WASTE, NUKES are not eligible for Renewable Energy Certificates (RECs), also known as Green tags, Renewable Energy Credits,under MASS Law. NUKES can not compete, against CHEAP FRACKED GAS. DRILL, BABY, DRILL is Successful! NEW ENGLAND will need MORE GAS, so NE CANNOT stop the Cheap GAS = $$7 – 2010 $$2.3-2016 cheaper than coal and MORE Emissions NOT LESS, and once we get 85% of our Energy from GAS, do you believe the GAS Prices will be $$2.3 or LOWER???
First of all the reduction in greenhouse gas emissions is not going to happen because fossil fuel consumption will continue to make up the loss of nuclear. Secondly, wind and solar have a capacity value close to zero and their addition will not reduce any of the current grid capacity deemed necessary to address peak load. Since Canada shares the same seasonal peak demands as New England, Canadian hydro power will likely be assigned a capacity value close to zero.
All in all the future looks to require a grid with substantial over capacity by today’s standards, and the failure to estimate potential capacity price increases constitutes a major flaw that will mislead policymakers into additional destructive policy decisions on energy.